Cognitive ability and dynamic risk taking: Evidence from horserace betting
Session Title
Sports Betting: Behavior & Decision Making
Presentation Type
Paper Presentation
Start Date
28-5-2026 12:00 AM
Abstract
Prospect theory–based models of dynamic risk taking predict that decision makers increase risk after experiencing gains (the “house money effect”) and reduce risk following losses (the “playing safe effect”), while adjusting their behavior to remain at or slightly above a reference point, typically break-even. Despite extensive empirical work on dynamic risk taking, little is known about how these behavioral responses vary with individual cognitive ability. In this paper, we examine whether cognitive ability, measured by IQ, predicts dynamic risk taking in the context of horse race betting within a single race meeting. We combine individual-level betting account data from a horse racing betting company with administrative records from the Finnish adult population and cognitive ability test scores from the Finnish Defence Forces. Our preliminary findings indicate that bettors’ behavior is broadly consistent with prospect theory–based models of dynamic risk taking. However, we find no evidence that individual differences in cognitive ability systematically affect bettors’ sensitivity to either the house money effect or the playing safe effect over the course of a race meeting.
Cognitive ability and dynamic risk taking: Evidence from horserace betting
Prospect theory–based models of dynamic risk taking predict that decision makers increase risk after experiencing gains (the “house money effect”) and reduce risk following losses (the “playing safe effect”), while adjusting their behavior to remain at or slightly above a reference point, typically break-even. Despite extensive empirical work on dynamic risk taking, little is known about how these behavioral responses vary with individual cognitive ability. In this paper, we examine whether cognitive ability, measured by IQ, predicts dynamic risk taking in the context of horse race betting within a single race meeting. We combine individual-level betting account data from a horse racing betting company with administrative records from the Finnish adult population and cognitive ability test scores from the Finnish Defence Forces. Our preliminary findings indicate that bettors’ behavior is broadly consistent with prospect theory–based models of dynamic risk taking. However, we find no evidence that individual differences in cognitive ability systematically affect bettors’ sensitivity to either the house money effect or the playing safe effect over the course of a race meeting.